The Week Ahead: 12-16 June 2017

The British pound was sharply lower Thursday night after the shock UK election news resulted in a strong 2% sell off with Sterling tumbling to an eight-week low. The unexpected result May and her conservative party felt resulted in the loss of its majority in parliament after the national election which added to political risks surrounding the upcoming Brexit negotiations, due to start on June 19. Sterling found some support as reports that UK Prime Minister Theresa May was seeking a deal to form a government with support from Northern Ireland’s Democratic Unionist Party, known as the DUP began to filter through.

The Euro was a touch lower against the dollar, with EUR/USD slipping 0.13% just a day after the European Central Bank cut its inflation forecasts, but dropped its guidance that interest rates may be cut again. ECB chief Mario Draghi said the cuts were mainly due to lower oil prices. The central bank raised its growth forecasts for the next few years, saying it now expects gross domestic product to rise by 1.9% this year, up from 1.8% expected back in March. Draghi also said risks to the growth outlook are now “broadly balanced”, dropping the ECB’s previous warning that risks were to the downside. He added that the euro zone recovery is enjoying “stronger momentum”, and is growing at a “somewhat faster pace than previously expected”.

The US Dollar rose against a basket of the other currencies on Friday as the pound remained sharply lower after British Prime Minister Theresa May’s Conservative Party lost out on its seat majority. On Thursday, attention was on Former FBI Director James Comey, who accused President Donald Trump of firing him in a bid to undermine a probe into Russia’s alleged involvement in the U.S. presidential election, but did not say whether he thought the president attempted to obstruct justice. Despite more negative headlines surrounding Trump US investors appeared to shrug off the news resulting in little movement in prices.

In the week ahead market participants are likely to focus on Wednesday’s US Federal Reserve policy meeting, where the central bank is widely expected to deliver its second rate hike so far this year. Markets will also be watching central bank meetings in the UK to see their response in the aftermath of last week’s elections. Indigo FX has compiled a list of this and other key economic releases likely to affect currency prices.